It Is Time for a Company to Do Its MRP

question 64

Essay

It is time for a company to do its MRP schedule, but they aren't sure which lot sizing approach to use: lot-for-lot (LFL), fixed-order quantity (FOQ) using the EOQ approach, or periodic-order quantity (POQ). They have the following information regarding the product they wish to produce:
$\begin{array}{|l|l|l|l|l|l|l|}\hline \text { Week } & 1 & 2 & 3 & 4 & 5 & 6 \\\hline \text { Net Requirements } & 50 & 40 & 60 & 30 & 50 & 30 \\\hline\end{array}$ Carrying costs = $1 per unit per week
Setup costs = $125
Annual demand = 2000 units
Work year = 50 weeks
a. What is the production lot size for Week 2 using the LFL method?
b. What is the total cost using the LFL approach?
c. What is the FOQ using the EOQ approach?
d. What is the beginning inventory in Week 3 using the FOQ approach?
e. What is the total cost using the FOQ method?
f. What is the POQ?
g. What is the ending inventory in Week 4 using the POQ approach?
h. What is the total cost using the POQ method?

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Definitions:

Price Fall

A reduction in the market price of a good or service, which can influence consumer behavior and economic conditions.

Demand Function

A mathematical expression that shows the relationship between the quantity demanded of a good and its price, holding other factors constant.

Elasticity

A measure of how much the quantity demanded or supplied of a good responds to a change in price or other economic variables.

Elasticity of Demand

Quantifies the change in demand for a commodity in response to its price movements.